Too early for China to fight inflation: researcher

BEIJING (Reuters) - China must wait before turning to fight inflation even if asset bubbles are forming, because consumer prices are not rising and monetary tightening now would imperil the economic recovery, a government researcher said in a commentary published on Wednesday.

Fan Caiyue, who works at the economic research institute under the National Development and Reform Commission, China's powerful economic planning agency, also said that the government should rely on administrative measures, not a shift in monetary policy, to prevent the formation of asset bubbles.

With ample liquidity powering fast rises in stock and property markets, analysts have begun to ask when China will tamp down on money growth to head off incipient bubbles.

Added to that concern, the statistics department of the People's Bank of China said in a report on Tuesday that Chinese consumer prices would bottom out in the third quarter after months of falling and could then rebound. China's top leadership reaffirmed last week that the country would stick to its "active" fiscal and "appropriately loose" monetary policies.

"If we change our policy stance now, the economic recovery might be halted and there could even be another fall in growth," Fan wrote in the official China Securities Journal.

He said that worries about the surge in bank lending fuelling inflation were overdone, because over-capacity and weak demand in the Chinese market would delay the transmission of inflationary pressure from fast money growth to rising prices.

"An overly early fight against inflation would harm the micro foundations of the economic recovery, especially hurting private investment, which has just begun to rise," he wrote.

"At the same time, we do have to pay great attention to asset prices and, using administrative measures, we should prevent the formation of asset bubbles."

He Jian, deputy director of the economic and financial committee of the National People's Congress, China's top legislature, agreed that inflation was not a concern for now.

"I do not think there will be inflation in the short term," he said. "China needs (annual) price rises of 3-5 percent for the economy to truly develop healthily."

But he warned that inflationary expectations could have a big negative impact on the economy. China needs to tighten loan growth in the second half, the 21st Century Business Herald cited him as saying on Wednesday.

The government should also shift its policy priority toward job creation and increasing household income to spur consumption, he said.

"It would be dangerous if investment growth picks up while consumption does not increase and the industrial structure does not improve," he said.

(Reporting by Simon Rabinovitch and Langi Chiang; Editing by Ken Wills)